In standard costing, practical standards can be used to forecast cash flows and to plan inventory, as well as to signal abnormal deviations in costs.

Question

Quizplus · Accepted Answer

Standard costing involves the use of predetermined standards or benchmarks for costs, which can be used to forecast cash flows, plan inventory, and identify abnormal deviations in costs. Practical standards may be used in certain situations where it is necessary to take into account the actual conditions of production, such as using a lower standard for raw material usage in cases where quality variations or waste occur more frequently than assumed in a theoretical standard.

In Standard Costing, Practical Standards Can Be Used to Forecast